Suncor Energy Inc.’s $4.13 billion takeover of Canadian Oil Sands Ltd. looks far from certain, with the target’s share price trading at a record gap to the bid just a day before expiring.

Where did the potential buyers of Canadian Oil Sands disappear to?

At a hearing before the Alberta Securities Commission in late November, it was said as many as 25 parties are reviewing the ‘opportunity,’ to bid on Canadian Oil Sands

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Shares of Calgary-based Canadian Oil Sands closed Wednesday at $7.47 in Toronto, putting Suncor’s $8.52 per share offer at a record 14.1 percent premium since the deal was announced on Oct. 5., according to data compiled by Bloomberg. Suncor, the country’s largest oil producer by market value, is offering 0.25 share for each of Canadian Oil Sands.

The market “seems to be pricing in a reasonably high probability it doesn’t happen,” said Randy Ollenberger, an analyst at Bank of Montreal’s BMO Capital Markets unit in Calgary. “It kind of reflects the fact that the market is concerned about the downside risk here if it doesn’t go ahead.”

The takeover battle has shaken up the country’s usually collegial oil patch. Canadian Oil Sands Chief Executive Officer Ryan Kubik has accused Suncor of trying to “scare” shareholders into a deal. He said in a Jan. 6 video the company would be better off remaining independent, even as oil prices continue to tumble and his efforts to find another bidder haven’t yielded results. Suncor CEO Steve Williams said Jan. 5 in an interview with Bloomberg TV he wouldn’t sweeten the offer, vowing to walk away if there’s not enough support. “Hope isn’t a strategy,” he said in Nov. 12 letter to Canadian Oil Sands shareholders.

‘Vocal Opposition’

West Texas Intermediate, the North American benchmark crude, has fallen about 25 per cent since Suncor made its unsolicited bid. Canadian Oil Sands owns 37 per cent of Syncrude, the largest shareholder in the project which mines and upgrades bitumen in Alberta. The company’s Suncor is also a stakeholder, owning 12 per cent. Canadian Oil Sands shares rose 1.1 per cent to $7.56 at 10:38 a.m. in Toronto.

These guys, I assume, have canvassed the world for someone willing to pay something more and haven’t found anyone.

Shareholders opposed to the deal, including Seymour Schulich, the resource investor who pioneered a royalty payment concept for the mining industry, and Burgundy Asset Management Ltd., say Canadian Oil Sands is worth more. Their vocal opposition to the deal — Schulich took out an ad in the Globe and Mail newspaper trashing it — has heightened speculation about how many shareholders agree with them.

“Everybody I have talked to thinks the offer is too low,” Schulich said Monday in a telephone interview. He says he owns about 5 per cent of Canadian Oil Sands, making him one of the largest shareholders.

Cash Generation

Bill Mason, who said he manages about 200,000 Canadian Oil Sands shares at Value Financial Advisers Inc. in Denver, is another opponent. Mason started buying Canadian Oil Sands shares in 2006 and sees more upside with the company in an inevitable crude price recovery than with Suncor. Even if Suncor’s takeover attempt fails and Canadian Oil Sands shares plunge, they’re worth holding onto, he said.

“I’m not selling,” Mason, a vice-president at Value Financial, said in a phone interview. He expects an increase in dividend payments from Canadian Oil Sands to follow a market rebound. “I know that with their financial situation, even with oil at $35, they can go many years before taking some kind of emergency measures,” said Mason. “If oil prices go to $50, all of a sudden they’re generating a large amount of cash.”

The Syncrude project has decades of valuable supply, Mason said. “What Suncor is trying to do is pick off an existing piece and they’re trying to do it at a distressed level price,” Mason said.

Others say Suncor will ultimately prevail.

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Reasons Flawed

“It would be a surprise if shareholders hold out and don’t tender,” Sachin Shah, a special situations and merger arbitrage strategist at Albert Fried & Co. in New York who doesn’t own any Canadian Oil Sands shares, said in an interview. Investors will take a loss on their Canadian Oil Sands shares if they choose to hold them and Suncor walks away, he said.

With crude now trading at less than $35 a barrel — below the level Canadian Oil Sands says Syncrude requires to cover costs of operating its bitumen mine — some investors expect Canadian Oil Sands shares to fall below the Oct. 2 pre-offer price of $6.19 if Suncor fails to win enough support.

“If this bid goes away, it trades probably at $5,” said Ben Cubitt, president of Toronto-based Samara Fund Ltd., an event-driven fund that holds roughly 300,000 shares in Canadian Oil Sands. “The reasons for not tendering, I think, are a little bit flawed.”

After Canadian Oil Sands completed its review of the company and no other offers emerged, Cubitt said it’s clear to him the company is worth what Suncor is willing to pay. He said the investors who bought higher than the current offer were “anchoring” their investment and stand to lose further if Suncor walks away and the shares fall again.

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“These guys, I assume, have canvassed the world for someone willing to pay something more and haven’t found anyone,” he said. “So, it is impossible to argue that at this moment in time it is worth more.”

Rafi Tahmazian, Calgary-based director and senior portfolio manager at Canoe Financial LP, said he sold his funds’ shares in Canadian Oil Sands shortly after the Suncor bid materialized when they were trading at about $9.50 each.

“As soon as that offer happened, I sold on the simple fact that it traded at a premium,” he said. “Everyone expected another bidder, and I think that was a ludicrously low-risk option. So, I’ll take the premium all day long.”